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Cliffs Natural Resources: What Will Drive Performance after 2Q17?

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Part 4
Cliffs Natural Resources: What Will Drive Performance after 2Q17? PART 4 OF 11

Cliffs and US Steel Production in the First Half of 2017

US steel production

As we saw in the previous part of this series, US steel production is a very important driver for Cliffs Natural Resources (CLF) since it directly drives its US (DIA) (DOW) clients’ top lines. In this context, we’ll explore the progression of domestic production growth and capacity utilization in domestic players.

Cliffs and US Steel Production in the First Half of 2017

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According to data released by the World Steel Association, US steel production contracted 1.7% YoY (year-over-year) in June 2017 to 6.7 million tons. Production was also higher at 7.0 million tons in May 2017.

In the first half of 2017, however, US steel production rose 1.3% YoY.

According to data released by the AISI (American Iron and Steel Institute), US steel production rose 6.4% YoY for the week ended July 22, 2017. Year-to-date, US production has risen 2.5% to 50.3 million tons.

Capacity utilization

For the week ended July 24, 2017, capacity utilization for the US steel industry was 76.1%. Year-to-date, the utilization was 74.5%, which was higher than capacity utilization of 72.4% in the same period last year.

Since November 2014, most of the US steel industry has operated below 80.0% capacity utilization. Market participants consider a level of 90.0% as healthy.

Accommodating higher utilization levels

Cliffs Natural Resources noted in June 2017 that it will be able to accommodate a boost in steel capacity utilization to 85.0% from the current level of 74.0%. One of the major drivers of higher capacity utilization would be the further stemming of imports.

This trend would be positive for steelmakers’ unit costs, which would be beneficial for companies such as Nucor (NUE), AK Steel (AKS), Steel Dynamics (STLD), U.S. Steel (X), and ArcelorMittal (MT). In turn, this improvement could benefit Cliffs Natural Resources.

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